Tài liệu 480(2012) Expenses and benefits A tax guide doc

1 Legal background 2 2 Dispensations – Notice of nil liability 6 3 Tax treatment of expenses payments 7 4 Taxable benefits and facilities 8 5 Non-taxable payments and benefits 9 6 Valuat

Expenses and benefits

A tax guide

It also explains the tax law relating to the valuation

of non-cash benefits received by any taxpayer:

• on or after 6 April 1998 in connection with

This booklet is based on the law in force at

6 April 2011 It has no binding force and does not affectyour rights of appeal

Certain specific aspects of the law affecting

securities/share schemes apply from dates later than

6 April 2007 Please see the website address shown atChapter 23.13 for more details

References to the relevant legislation are shown

at the side of each paragraph If you are in doubt,consult the wording of the statute at

www.legislation.gov.uk

New or revised material is indicated by a green line

in the margin.

1 Legal background 2

2 Dispensations – Notice of nil liability 6

3 Tax treatment of expenses payments 7

4 Taxable benefits and facilities 8

5 Non-taxable payments and benefits 9

6 Valuation of benefits 15

7 Deductions for expenses 17

8 Travelling and subsistence expenses 19

9 Employees engaged on international work 20

10 Expenses for spouse accompanying employee on business trips 21

11 Cars and vans available for private use – when a benefit charge is incurred 22

12 Calculating the car benefit charge 25

13 Fuel provided for company cars and vans 33

14 Vans available for private use 35

15 Pooled cars or vans 37

16 Mileage Payments and Passenger Payments 38

17 Beneficial loan arrangements 40

18 Scholarships 48

19 Tax not deducted from remuneration paid to directors 49

20 Entertaining expenses 50

21 Provision of living accommodation 51

22 Mobile phones and BlackBerrys 56

23 Securities/Share Options and Securities/Share-related benefits 57

24 Procedures to be followed by employer and employee 59

25 Guidance on completion of forms P11D 60

26 Remuneration in non-cash form, for example, payments by intermediaries 62

27 Non-cash benefits in connection with termination of employment or 63

from employer-financed retirement benefit schemes

Appendix 1 Car benefit – examples of calculations 65

Appendix 2 Car benefit: the appropriate percentage 67

Appendix 3 Mileage Allowance Payments 68

Appendix 4 Beneficial loan arrangements 69

Appendix 5 'Qualifying loans' 70

Appendix 6 Taxation of beneficial loan arrangements 71

Appendix 7 Relocation expenses 74

Appendix 8 Incidental overnight expenses 77

Appendix 9 Work-related training 80

Appendix 10 Self Assessment – expenses and benefits 82

Appendix 11 Employer Supported Childcare 85

Index 90

Notes 103

1

1.1 Under general tax law some, but not all, expenses payments and benefits are taxable remuneration Since 1948 the Income Tax law has also contained special rules affecting most directors and employees The broad effect of these special rules was that expenses payments made to them and benefits provided for them became taxable.

1.2 The Finance Act 1976 and subsequent Finance Acts have extended these special rules to a greaternumber of individuals and provided new arrangements for taxing a variety of benefits provided for directors and certain employees (for example, motor cars, loans and vans)

1.3 This booklet describes the scope of the legislation and the effect of the changes resulting from

the Finance Act 1976 and subsequent Finance Acts Most of the relevant provisions are now in Part 3 Chapters 2-11 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)

Unless otherwise stated the statutory references in this booklet are to ITEPA 2003 The full meanings of other abbreviations which also appear in the booklet are:

CAA 2001 Capital Allowances Act 2001 ESC Extra-statutory concession – followed by its letter and number

FA Finance Act – followed by year in which enacted ICTA 1988 Income and Corporation Taxes Act 1988

ITTOIA 2005 Income Tax (Trading and Other Income) Act 2005

SI Statutory Instrument - followed by its number and the year in which it was made

TMA 1970 Taxes Management Act 1970

Enquiries

1.4 Enquiries by taxpayers (or their agents) about the application of the provisions of ITEPA 2003 to

their particular circumstances should be made to the HM Revenue & Customs (HMRC) office dealing with their tax affairs

The benefits code

Sections 1(1), 62(1), 1.5 In ITEPA 2003 Income Tax is chargeable on employment income that includes:

7(5) and (6) – earnings – salary, wages, fees and other emoluments

– amounts treated as earnings – including the benefits code– amounts which are not earnings but count as employment income (see Chapters 23 and 27

Sections 336-338 1.6 Directors or employees affected by these provisions will not necessarily have to pay tax on the full

amount or value of expenses payments or benefits provided They may be entitled to a deduction for certain expenses Further information on this is given in Chapters 7-10 and Chapter 20

Who is affected?

Section 63(1) 1.7 The benefits code applies to:

Section 67(1) (a) directors and certain other persons in controlling positions whatever their remuneration,

Section 216(3) but not to certain full-time working directors and certain directors of charities and

non-profit making concerns, and(b) employees, including the directors excluded under (a) above, who are remunerated at the rate of £8,500 or more a year including all expenses payments and benefits before the deduction of any allowable expenses other than:

– contributions to an approved superannuation fund in respect of which the individual isentitled to tax relief as an expense

– exempt profit-related pay– contributions under an approved payroll giving scheme

2

Chapter 1 Legal background

Sections 63(1)

and (2)

Certain motoring expenses are disregarded for purposes of assessing the car and car fuel benefitsdescribed in Chapters 11, 12 and 13 But all these motoring expenses, in addition to the car and fuel benefit charges mentioned in Chapters 11 to 13, must be taken into account for the purposes

of the £8,500 test (see paragraph 11.14)

1.8 In the remainder of this booklet, unless otherwise indicated the word employee should be read

as referring to directors and employees, other than those in an excluded employment(see paragraph 1.19)

Directors

Sections 67(1) 1.9 The word director includes directors of companies and any person in accordance with whose

instructions the directors are accustomed to act (other than a person who is merely a professional

adviser) The word company includes an unincorporated association.

Section 832 The word director also includes a member of the committee which manages such an association

and any member of a body whose affairs are managed by its members But certain directors of

Section 216(3) charities or non-profit making concerns are excluded from the special rules as are certain full-time

working directors - see paragraph 1.10 to 1.16

Exclusion of certain directors from the special rules

Section 67(3) 1.10 A full-time working director is defined as a director who is required to devote substantially the

whole of his or her time to the service of the company in a managerial or technical capacity.

Sections 66(3) 1.11 A full-time working director whose rate of remuneration including all expenses payments and

and 66(4) benefits has not exceeded, or does not exceed £8,500 a year and who, either as an individual or

together with associates and relatives, does not own or control a material interest

(broadly more than 5% of the ordinary share capital) in the company is excluded from the scope

of the legislation

Section 216(3) 1.12 Certain directors of charities or non-profit making concerns are also excluded from the

special rules To be excluded, such a director:

• must not own or control directly or indirectly a material interest (see paragraph 1.11) in the

company employing him or her, and

• must not be remunerated at a rate of £8,500 or more a year including all expenses payments

and benefits before deducting any allowable expenses, and

• must be either– a full-time working director as described in paragraph 1.10, or

– a director of a charity or a non-profit making concern

1.13 Even where the director satisfies the above conditions he or she will remain within the scope of the special rules if any of his or her employments with the same employer or with an associated employer is not an excluded employment

Meaning of charity

Section 505 1.14 The word charity as used above means a body established for charitable purposes only

A body or concern which has been granted charitable exemption for tax purposes by HMRC Executive Committee will be treated as a charity

Non-profit making companies

Section 216(3) 1.15 A non-profit making company is one which does not carry on a trade and whose functions do

not consist wholly or mainly in the holding of investments or other property The mere fact that the concern involved does not make a profit does not make it a non-profit making concern forthe purposes of the legislation

General effect of the exclusions

1.16 The general effect of the exclusions is that they remove from the special rules:

• full-time working directors of any concerns

• members of committees who are treated as directors of unincorporated bodies or non-profit making concerns

• directors of charities,provided that

• the individuals are not remunerated at a rate of £8,500 a year or more calculated in accordance

with paragraph 1.7(b), and

• they do not hold a material interest in the body or concern employing them

This paragraph should be read subject to the reservation in paragraph 1.13 above

Sections 68(1)

and 67(2)

Meaning of employment

Section 66(3) 1.20 The word employment as used in this booklet means any office or employment whose earnings

are chargeable as employment income

Meaning of remuneration 1.21 For simplicity, the word remuneration has been generally used in this booklet in place of the word earnings in ITEPA 2003 and means any kind of pay for a job It includes salaries, fees, pay,

wages, overtime pay, leave pay, bonus, commission, perquisites, tips, gratuities, benefits in kind and expenses payments and allowances

Benefits provided for the family or household of an employee

Section 201(1) 1.22 Subject to minor exceptions any benefit provided for the members of the family or household

Section 721(5) of an employee ranks as if it were provided for the employee personally The term family or

Section 174(6) household covers the employee’s:

Section 839 • spouse

• children and their spouses

• parents

• servants, dependants and guests

• registered civil partner

Where benefits are provided in connection with loans and share incentive schemes there are differentdefinitions of the family circle For beneficial loan arrangements see paragraph 17.10

Provision of benefits by employer

Sections 201(3) 1.23 Where expenses payments are made to, or benefits are provided for, an employee or members of the

employee’s family or household by the employer they are deemed to have been made or provided byreason of that employment - they are regarded as part of the reward for the job

Section 201(3) 1.24 There is one statutory exception to this - where the employer is an individual and a benefit

provided by the employer has been made in the normal course of domestic, family or personal

relationships In addition, paragraph 11.10 gives details of certain exemptions which apply where

a company provides cars for two or more members of the same family

Provision of benefits by someone other than the employer

Section 201(2) 1.25 Benefits provided for employees (or members of their families or households) by reason of their

Section 209 employment by someone other than their employer are taxable in the same way as if they had been provided by their employer

Section 554A 1.26 Finance Act 2011 introduced new rules in Part 7A ITEPA 2003, which apply in certain circumstances where there are arrangements to use third parties to reward employees These rules are sometimes referred to as the 'disguised remuneration' regime Broadly speaking, if third party arrangements are used to provide for what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former or future employment, then an Income Tax charge arises and the amount concerned will count as employment income

Sections 554A, 1.27 The rules only apply where a defined step is taken through a 'relevant third person'

Section 201(2) 1.17 The special provisions apply to an employee if, for the appropriate tax year, the renumeration

together with all expenses payments made to him or her and benefits provided for him or her amounts in all to £8,500 or more a year before deducting any expenses allowable for Income Tax.The special rules also apply to any of the full-time working directors or directors of charities or non-profit making concerns excluded under paragraphs 1.11 to 1.16 whose rate of remuneration issimilarly £8,500 or more a year

Section 220 1.18 In this connection, all employments held by an individual under the same employer are treated

as a single employment for the purposes of the £8,500 remuneration limit Similarly, where anindividual holds a number of employments with interconnected companies, these employments are regarded as if they were one employment for the purpose of deciding whether the individual

is paid at a rate of £8,500 or more And if any of the individual’s employments with the sameemployer or with an associated employer is not an excluded employment, the individual will be within the scope of the special rules in respect of all those employments

Exclusion of certain employees from the special rules

Section 63(4) 1.19 If an employee’s remuneration does not amount to £8,500 or more a year, the employment is a lower

paid employment In this context the term employee does not apply to a director (paragraph 1.8) Alower paid employment is an excluded employment to which the special rules in the benefits code donot apply, with the exception of the provision of living accommodation and vouchers or

and (3) ICTA 1988

ICTA 1988

Section 554A 1.29 A company that is a member of the same group of companies as the employing company at the time

the step is taken is not a 'relevant third person' unless:

• the step is taken as part of a tax avoidance arrangement, or

• the group company is acting as a trustee

Sections 554Z(5) 1.30 In determining whether two companies are members of the same group for this purpose, a special

and (6) test is used This test applies the group membership rules for Corporation Tax on chargeable gains, with one modification The chargeable gains test is a 75% test For the purposes of the group

exception, use 51% instead of 75% But otherwise the test works the same way

Sections 554E 1.31 The rules in Part 7A ITEPA contain detailed exclusions These prevent the legislation from catching

to 554X inclusive certain arrangements, even where there is a 'relevant third person' involved Generally the exclusions are targeted at arrangements which are not tax avoidance arrangements The exclusions are subject

to conditions and cover topics such as employee share and share option schemes, employee car ownership schemes, certain pension schemes and transactions under employee benefit packages

1.32 For more information on the new rules, please refer to the CWG2(2012), Chapter 5, paragraphs

166 to 167 titled Employment income provided through third parties ('Disguised Remuneration' rules).

Close companies – treatment of benefits

Sections 418(2) 1.33 A benefit which falls within the special provisions described in this booklet is excluded from the

extended definition of distribution for close companies which normally includes benefits in

kind afforded to a participator or to an associate of a participator

Part XI, Chapter I 1.34 Broadly speaking, a close company is one under the control of five or fewer participators and

their associates or of directors who are participators and their associates There are special definitions

for this purpose of control, participator and associate.

There are exceptions, for example, a company whose shares are quoted on the Stock Exchange

is not normally close if 35% or more of its shares are held by the general public

5

Section 65 2.1 To avoid the submission of details of routine expenses payments and benefits that would clearly

involve no extra tax liability the legislation provides for dispensations If the employer satisfies an

Officer of HMRC that all the expenses he or she pays and benefits he or she provides would be fullycovered by an expenses deduction the Officer may give a 'dispensation' That is to say, the Officermay notify the employer that the special provisions will not apply to those payments or benefits solong as the circumstances remain the same

2.2 There is a statutory tax exemption for Mileage Allowance Payments, below a certain amount,

to employees Consequently such payments cannot be included in a dispensation Mileage Allowance Payments in excess of the exempt amount are taxable (see Chapter 16).

Nor are dispensations given for 'round sum' expense allowances The Officer of HMRC will not give a dispensation if the effect would be to remove from the scope of the special rules an employee who would otherwise be within its terms.

2.3 Where a dispensation is given, the Pay As You Earn scheme does not apply to the payments orbenefits concerned The employer need not show the particular payments or benefits on the annual return he or she makes to HMRC (see Chapter 24), nor need the employee show them in his

or her Tax Return

2.4 More information on dispensations can be found on the HMRC website at

www.hmrc.gov.uk/paye/exb/schemes/dispensation.htm where you will find an online or

downloadable application form P11DX

You can also obtain an application form at any HMRC Enquiry Centre where you may also be able toaccess the HMRC website

2.5 Dispensations are reviewed from time to time The Officer can revoke a dispensation previouslygiven If the Officer does so the special provisions will apply to the payments or

benefits concerned

Chapter 2 Dispensations – Notice of nil liability

6

Section 70(1) 3.1 The provisions of the benefits code ensure that expenses payments made to an employee by

reason of his or her employment will normally rank as remuneration of the employee to whom they are paid unless they are already taxable or are covered by a dispensation For exceptions

to this see Chapter 5

3.2 Expenses payments include:

• advance payments on account of expenses and reimbursements of expenses incurred, including all kinds of travelling and entertaining expenses

– for reimbursed motoring expenses see paragraph 11.13 and 11.14

• allowances related to specific expenses; for example, based on mileage or to meetsubsistence whether calculated by reference to a fixed scale or otherwise

• round sum allowances for entertaining and other expenses

Section 70(2) • amounts put at the disposal of the employee in respect of expenses and paid away

by the employee

Section 90(1) • expenses paid by the employee by means of a credit card in the employer’s name

– unless the card you have provided was used to make a business purchase, an employee has your

prior authority for the purchase and when making the purchase an employee makes it clear that they are acting on behalf of your business

For a purchase to be clearly on your business’s behalf the following must apply:

– your employee must explain in advance that the purchase is on your behalf

– the supplier must accept that the purchase is on your behalf

3.3 Further information about travelling and subsistence, cars, and entertainment, is given inChapters 8-16 and 20

Chapter 3 Tax treatment of expenses payments

7

Section 201(1) 4.1 Where the special provisions for an employment other than an excluded employment

(paragraph 1.19) apply, all benefits provided count as remuneration of the employee for whom (or for whose family or household) they are provided

Particular benefits to which special taxing rules apply

Sections 114, 149, 174, 4.2 Certain benefits such as cars and vans available for private use, loans, certain arrangements

in connection with share incentive schemes, scholarships and tax not deducted from remunerationpaid to directors are, however, taxed in accordance with special rules There are also special rules forcertain arrangements for providing employment income through third parties See paragraph 1.26

Types of taxable benefits

Section 201(2) 4.3 Benefits and facilities include:

Sections 97, • the provision of living or other accommodation, including light, heat, rates and domestic

201(2) and 315 or other services (see Chapter 21)

Section 205 • the use of any asset provided by the employer or another person acting on the employer’s behalf, for

example, the use of a motorcycle, an aircraft or yacht, or of furniture or a TV set The way in whichthe benefit from the use of such an asset is valued is described in paragraph 6.7 except for cars whichare considered in Chapters 11-13, vans which are considered in Chapter 14 and mobile phoneswhich are considered in Chapter 22

Section 149 • the provision of fuel for private motoring in a provided car (see Chapter 13)

Section 62, • gifts of assets to the employee, or the sale to the employee of assets at less than their

Sections 206(2) and (3) market value (this applies not only to assets such as a car or a house, but also to goods such

as clothes, TV sets, wines or groceries)

Sections 62 and 90 • any expenses or liabilities incurred by the employee and paid direct by the employer,

for example, hotel or restaurant bills, whether paid direct or through a credit card company

Section 223 • Income Tax not deducted from remuneration paid to a director, but paid to HMRC by the employer

and not reimbursed by the director (see Chapter 19)

Section 211 • scholarships awarded to students by reason of their parents’ employment (see Chapter 18)

Section 201(2) • any other benefits or facilities of any kind, for example,

– hotel accommodation and restaurant facilities arranged by the employer, holidays, childcare (but see Chapter 5 and Appendix 11 regarding the exemption of some forms of childcare)

– shooting, fishing and other sporting facilities (but see Chapter 5 regarding the exemption of some sporting facilities)

– work carried out at the employee’s residence

Further information on expenses and benefits and their tax treatment can be found on the HMRC

website at www.hmrc.gov.uk/paye/exb/a-z/a/index.htm

PAYE Settlement Agreement (PSA)

4.4 A PSA is a flexible scheme an employer can use to settle any PAYE (Pay As You Earn) tax and National

Insurance contributions (NICs) due to HMRC on three types of expense and benefit:

– minor items– irregular items– items it is impractical to operate PAYE on or to value for P9D/P11D purposes

Under such a scheme an employer would settle the tax and NICs due on the items covered by a PSA with

a single payment that includes both:

• the tax due on the expenses and benefits covered by the PSA – note that this tax would normally be

payable by an employee (usually through their tax code), and that the tax the employer pays must

be ‘grossed up’ taking account of the tax rates payable by the employees covered by the PSA

• Class 1B NICs, calculated not just on the value of the items covered by the PSA but also on the tax

paid under the PSA – this is because paying an employee’s tax liability counts as providing them with

a further benefit

For more information go to www.hmrc.gov.uk/paye/exb/schemes/PSA.htm

Extension of Class 1A National Insurance Contributions (NICs)

4.5 Employers are required to pay Class 1A NICs on most benefits See the P11D Guide and leaflet CWG5 for more information

Chapter 4 Taxable benefits and facilities

The following expenses payments and benefits are not normally taxable under the provisions described in this booklet.

Annual parties or similar functions

Sections 264 Annual parties at Christmas or alternative functions of a similar nature, such as an annual

and 266(3) dinner dance, which are open to staff generally and which cost no more than £150 per head

to provide Where there is more than one annual function and their total cost per head exceeds

£150, only the functions that total £150 or less will not be taxed

Please note that the figure of £150 quoted is not an annual allowance and the criteria set out at section 264 ITEPA 2003 must be satisfied to meet the exemption

Cost of purchasing assets from employees

Section 326 Costs which an employer incurs like any other buyer, in connection with the purchase of an

asset from an employee

Equipment provided for disabled employees

Employees with a disability are not taxable on the benefit of the private use of equipment or

services provided by their employer to enable them to take up or to continue work (for example,

a wheelchair or hearing aid)

Equipment provided solely to carry out the duties of employment are exempt under the office

accommodation, supplies and services exemption (see above) but where equipment is also usedoutside work so that private use is significant that exemption does not apply This exemption ensures that no taxable benefit arises in these circumstances

Fees relating to monitoring schemes relating to vulnerable persons

Section 326A With effect from 6 April 2010, there is no liability to Income Tax where an employer pays direct for,

or reimburses an employee for, a fee for an application to join the Protection of Vulnerable Groups(Scotland) monitoring scheme

Goodwill gifts

Sections 265, The provision of goodwill entertainment for an employee, or for a member of the employee’s

266(1) and 267(2) family or household, provided that:

• the person providing the entertainment is neither the employer, nor a person connected

with the employer

• neither the employer nor a person connected with the employer has directly or indirectly

procured the provision of the entertainment, and

• the entertainment is not provided either in recognition of particular services which the

employee has performed in the course of the employment or in anticipation of particularservices which are to be performed by the employee in the course of the employment

This exemption applies only when the cost of the entertainment is assessable under Section 73 (vouchers), Section 90 (credit tokens) or Section 201 (benefits in kind)

It does not extend to liability under Section 62 or Section 70

Sections 270 and 324 Certain gifts received by an employee if all the following conditions are satisfied:

• the gift consists of goods or a voucher or token only capable of being used to obtain goods

• the person making the gift is not the employer or a person connected with the employer

• the gift is not made either in recognition of the performance of particular services in the

course of the employment or in anticipation of particular services which are

to be performed

• the gift has not been directly or indirectly procured by the employer or by a person connected

with the employer

• the gift cost the donor £250 or less, and

• the total cost of all gifts made by the same donor to the employee, or to members of the

employee’s family or household, during the Income Tax year is £250 or less

Health-screening and medical check-ups

Sections 320B A maximum of one health-screening assessment and one medical check-up in any year

• 'Health-screening assessment' means an assessment to identify employees who might be at

particular risk of ill-health

• 'Medical check-up' means a physical examination of the employee by a health professional for

(and only for) determining the employee’s state of health

Job-related living accommodation

Sections 99(1), (2) The provision of living accommodation in certain circumstances, see paragraphs 21.2 and 21.4

and 100

Late night taxis

Section 248 Where an employee is provided with a taxi paid for by his employer for a journey from work to

home, this represents a benefit unless:

• the four late night working conditions are satisfied, and

Chapter 5 Non-taxable payments and benefits

Section 210

S.I.No 1596 2002

9

• the number of journeys is no more than 60 a year.

Consequently an employee provided with a taxi from work to home once a week (52 times

in a year) does not qualify for this exemption unless all the late night working conditions are satisfied, even though they have been provided with a taxi on fewer than 60 occasions in the year

The late night conditions that must be satisfied are:

1) the employee is required to work later than usual and until at least 9pm

2) such late night working occurs irregularly, and

3) by the time the employee stops work, either public transport has ceased or it would not be

reasonable to expect the employee to use it, and 4) the transport provided is by taxi or equivalent road transport

In most cases it is clear whether an employee who works until at least 9pm also works later than usual For example, most restaurant or public house employees usually work later than 9pm and consequently when doing so they do not work later than usual They cannot therefore satisfy the first condition Something is 'usual' if it conforms to a common or ordinary pattern The first condition

is intended to apply when someone is required, on occasion, to work later than usual and until at least 9pm

If someone works later than usual and until later than 9pm this must be irregular Irregular means not

following a regular or established pattern An employee who works later than usual and until at least9pm every Friday, or on the last Friday of each month, is not working later than usual irregularly Even

if an employee works later than usual and until 9pm on one day each week, but on no particular day,this is not irregular

It is a matter of fact whether public transport is still available If an employee’s journey home requires

taking two or more forms of public transport and one of those has stopped by the time of the journeyhome, the third condition is satisfied for the whole journey An employer may consider various factorswhen deciding whether it is reasonable to expect an employee to use public transport but becausethe journey frequency is reduced and/or must be completed in the dark, or the employee has had along day and is tired, or has a heavy case to carry, or is travelling to an unmanned station, are not inisolation sufficient reasons to satisfy the second part of the third late night working condition Theextent to which a journey from work to home after 9pm on public transport is significantly differentfrom a journey earlier in the day, so that it is reasonable for an employer not to expect an employee

to undertake that journey, depends on the facts in each case

Long service and suggestion scheme awards

Section 323 Long service awards made to directors and employees as testimonials to mark long service, which take the form of tangible articles of reasonable cost, or of shares in an employing company (or another company in the same group) when the relevant period of service is not less than 20 years and no similar award has been made to the recipient within the previous 10 years An article may

be taken to be of reasonable cost where the cost to the employer does not exceed £50 per year

of service

Section 321 Awards under suggestion schemes made to employees where the following conditions

are satisfied:

(a) the employer has established a scheme under which suggestions are made; the scheme is

open on the same terms to all the employees, or to a particular class or description of them (b) the suggestion for which the award is made relates to the activities carried on by the employer (c) the suggestion is outside the scope of the employee’s normal duties The test is whether, taking

account of his or her experience, the employee could not reasonably have been expected to putforward such a suggestion as part of the duties of the post

(d) the suggestion is not made at a meeting held for the purpose of proposing suggestions

(e) awards other than encouragement awards (see (i) below) are only made following a decision to

implement the suggestion, and are made directly to the employee or employees concerned (f) the decision to make an award other than an encouragement award is based on the degree of

improvement in efficiency and/or effectiveness likely to be achieved, measured by reference to theprospective financial benefits and the period over which they would accrue, and the importance ofthe subject matter having regard to the nature of the employer’s business

(g) the amount of an award does not exceed:

– 50% of the expected net financial benefit during the first year of implementation, or

– 10% of the expected net financial benefit over a period of up to 5 years subject to an

overriding maximum of £5,000 Where an award exceeds £5,000, the excess is not covered

by this exemption (h) where an award is made jointly to two or more employees, the amount exempted at (g) above is

divided between them in proportion to the amount paid to each (i) any encouragement award is of £25 or less An encouragement award is one which is made in

respect of a suggestion which has some intrinsic merit and/or reflects meritorious effort on the part of the employee in making the suggestion

10

Meals and food vouchers

Section 317 as Free or subsidised meals provided on the employer’s business premises, or in any canteen

amended by section where meals are provided for the staff generally, or a ticket or token used to obtain such

60 FA 2010 meals, if the meals are provided on a reasonable scale, and either all employees may obtain

free or subsidised meals on a reasonable scale, whether on the employer’s premises or elsewhere, or the employer provides free or subsidised meal vouchers for staff for whom meals are not provided

This exemption does not apply in the case of a hotel, catering or similar business, to free or subsidised meals provided for its employees in a restaurant or dining room at a time when meals are being served to the public, unless part of it is designated as being for the use of staff only

Nor does the exemption apply where free or subsidised meals are provided as part of salary sacrifice

or flexible remuneration arrangements

Section 89 Meal vouchers issued to employees provided that the vouchers are non-transferable, are used for meals only and the value of vouchers issued to employees does not exceed 15p for each

working day Where any restriction is placed on their issue to employees they must be

available to lower-paid staff Where the value of the vouchers exceeds 15p for each working

day, the excess is taxed The value of any voucher that does not comply with the above

conditions is taxed in full

Medical treatment abroad

Section 325 The cost of necessary medical treatment abroad borne by the employer, or borne by the

employee and reimbursed by the employer, where an employee becomes ill or suffers injury while away from the UK in the performance of his or her duties, and of providing insurance for the employee against the cost of such treatment

Mobile phones

Section 319 The provision of one mobile phone provided by an employer to an employee (but not if

provided to a family or household member) including any line rental and calls for that phone paid directly by an employer, unless any of these can be converted into money by the employee Money

an employer pays to an employee to use their own mobile phone is taxable See Chapter 22 for details

Office accommodation, supplies or services

Section 316 Accommodation, supplies or services (for example, office services and equipment, and

consumables) used by the employee in performing his or her duties, where the following

conditions are satisfied:

• if the benefit is provided on or in the employer’s premises the only condition is that

any use of the benefit for private purposes by the employee is not significant

• if the benefit is provided elsewhere

– the employer’s sole purpose in providing it must be to enable the employee

to perform the duties of his or her employment, and – any use of the benefit for private purposes by the employee is

not significant, and – that the benefit is neither the provision of a motor vehicle, boat or aircraft,

nor involves the extension, conversion or alteration of living accommodation or a building on land adjacent to it, or the construction of a building on such land

Parking spaces

Sections 237, The provision of a car or motorcycle parking space, or facilities for parking bicycles at or near

261(1) and 267(2) the employee’s place of work

Payments towards additional household costs incurred by employees who work at home

Section 316A From 6 April 2003, the Income Tax charge that would previously have arisen when an employer

contributes to the additional household costs incurred by employees who work from home, hasbeen abolished

Where an employee works regularly at home, under agreed flexible working arrangements, an employer may now pay up to £3 per week (£156 per year) (with effect from 6 April 2008) without supporting evidence of the cost

If the employer pays more, then they must either:

• retain supporting evidence to show that the payment is wholly in respect of additional household expenses incurred by the employee in carrying out the duties at home, or

• seek an arrangement with their HMRC office whereby they can pay a higher amount without a

need to retain supporting evidence

Pensions etc on retirement or death

Section 307 Expenses incurred in the provision of any pension, annuity, lump sum, gratuity or similar

benefit to be given to the employee or to any member of the employee’s family or household

on the employee’s retirement or death The cost of providing such benefits may in some

circumstances be taxable under other provisions of ITEPA 2003

11

Purchases on employer’s behalf

Businesses are often run in such a way that employees make payments on their employer’s behalf For example, an employee may buy stamps, stationery and items of equipment for the employer and be reimbursed the costs incurred from petty cash or by cheque Such transactions are not providing the employee with either earnings or expenses because the employee has received no money of his own Accordingly such reimbursements do not feature on the P11D

Removals expenses and benefits

Part 4 Chapter 7 Removal expenses borne or removal benefits provided by the employer may be exempt from

tax and NICs The exemption is due to employees who change residence as a result of starting a new job

or as a result of a transfer within an employer’s organisation

Under the rules there is relief which exempts from tax the first £8,000 of removal expenses and benefitswhich qualify for the exemption To qualify, removal expenses and benefits must fall within specificcategories of expenses and benefits (see below), and the change of residence must satisfy a number

of conditions

The most important condition is that the employee must change his or her only or main residence as a

result of:

• starting a new employment

• a change of the duties of the employment, or

• changing the place where the duties are usually performed

It is not necessary for the employee to dispose of the old residence in order to qualify for relief

But there must be a change of his or her main residence If a relocation is cancelled so that the employee does not in fact change the main residence, any expenses reimbursed or benefits provided in connection with the cancelled relocation will be taxable

The new residence must be within reasonable daily travelling distance of the new normal place

Expenses and benefits which qualify for exemption can be grouped into six categories:

• disposal or intended disposal of old residence

• acquisition or intended acquisition of new residence

• transporting belongings

• travelling and subsistence

• domestic goods for the new residence

• bridging loans

More details of these categories of exempt expenses and benefits can be found at Appendix 7

Where the employee uses the services of a relocation management company the administration feescharged by the company are part of the costs to the employer of providing benefits for the employee

To the extent that the benefits provided are qualifying removal benefits, the administration fee alsoqualifies for relief

Re-training expenses and courses

Section 311 Costs met by an employer for an employee who is about to leave or has left within the

previous year, to enable the employee to attend certain courses of re-training intended to help

the employee get another job If the employee has not left by the time the course starts, he or

she must leave within two years after finishing it The exemption is withdrawn if the employee is re-employed by the same employer in the two years following the end of the course and the

employer is then required to advise HMRC within 60 days of this happening

Exemption is only available if the employee has been in the employment of the employer for atleast two years up to the time the course begins (or at the time the employment

ceased) for courses:

• which are designed to teach or improve skills which will help the employee to find new work and are entirely devoted to those objectives

• which last no more than two years

The opportunity to attend the course must have been given to all employees in a similar position.The expenses which are exempt are:

• fees for the course

• fees for examinations taken during or at the end of the course

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• the cost of essential books

• the costs of travelling and subsistence to the extent that they exceed the costs normally incurred by the employee in travelling between home and normal place of work (or former place of work if the employee has left)

If, at the time the employee started the course, all the conditions were satisfied but the employee does not then leave the employment within two years after the end of the course or

is re-engaged within that time, the employer must advise HMRC within 60 days and provide full details of the expenses not previously returned

If, when the course started, it was clear or could have been established that all the conditions about the course and attendance would not be satisfied but the employer nevertheless did not make a return of the appropriate amounts to HMRC, he or she may be responsible for any tax due

Some travel between home and work

Sections 248, The cost of transport (for up to 60 journeys in the year) which an employer provides to take an

266(1) and 267(2) employee home if either:

• the employee is occasionally required to work late (9pm or later) but those occasions are not

regular, and

• by the time the employee can go home, either public transport between the employee’s place of work and home has ceased, or it would not be reasonable in the circumstances for the employer to expect the employee to use it, or

• the employee normally travels to and from work in a car shared with other employees, and

• the employee cannot get home in the shared car because of unforeseen circumstances which

could not reasonably have been anticipated

See the section on late night taxis for more detail about the late working conditions (page 8)

Section 242 The benefit to employees of travel between home and work in a works bus provided that:

• the bus or minibus has a seating capacity of 9 or more, and

• the service is available to all employees, and

• the main qualifying use of the service is travel by employees between home and their workplace

or between workplaces, and

• substantially, the whole use of the service is by employees (and their children)

The benefit to employees of an employer subsidising a public transport bus service (or other public transport road service) used by employees for travelling wholly or partly between home and work or between workplaces provided that:

• the service is available to all employees, and

• is used for qualifying journeys (as defined for works buses)

The benefit of bicycles and/or cyclists’ safety equipment (or vouchers to obtain these) lent to employees provided that:

• such bicycles and equipment are available generally to employees, and

• the employees’ main use of the bicycles or equipment is for journeys between home and

their workplace, or between workplaces

Sections 210, The benefit of free meals or refreshments provided to employees if they participate in a

S.I No 205 2002 designated cycle to work day

ESC A4 Certain travelling expenses of unpaid directors of non-profit making companies and of

directors holding office as part of a professional practice: see paragraphs 8.11 and 8.14

of booklet 490

Section 245 Reasonable travelling and subsistence expenses reimbursed to or borne on behalf of employees

where, owing to the dislocation of public transport by strikes or other industrial action, employeesoccupy hotel or other overnight accommodation at or near their permanent workplace, or incur extra costs in travelling to and from work

Section 246 Assistance with the cost of travelling between home and work given to disabled persons

This exemption also applies to the car and car fuel scale charges in certain limited

circumstances See paragraphs 11.17 and 13.5

Section 305 Travelling facilities provided between the mainland and offshore oil or gas rigs or platforms And, where the timing of transport between the mainland and the rig make it necessary for employees to take overnight accommodation near the mainland departure point, subsistence expenses borne on behalf of, or reimbursed to, employees working on offshore oil or gas rigs

or platforms

13

Sports facilities

Section 261 Sports facilities generally available to the employer’s employees and members of their families and households This does not apply to facilities:

• available to the general public

• consisting of or provided in association with overnight or holiday accommodation

• provided on domestic premises, or

• consisting of mechanically propelled vehicles or vessels such as cars,

motor-boats and aeroplanes

Trivial benefits

Strictly all benefits are subject to tax and NICs, unless there is a specific exemption However,

sensible practical administration of the tax system determines that benefits of a trivial nature (for example, a seasonal gift of a turkey or an ordinary bottle or two of wine) should not becharged as a benefit Anything more lavish in quality or quantity remains chargeable

There is no monetary limit to determine what is a trivial benefit A cash benefit, or a benefitwith money’s worth, is never treated as a trivial benefit

Welfare counselling

Section 210 The benefit of welfare counselling made available to all employees generally on similar

S.I.No 2080 2000 terms is exempt from tax For this purpose welfare counselling does not include:

• any medical treatment

• advice on finance or tax (other than debt counselling)

• advice on leisure or recreation

• legal advice

Work-related training expenses

Section 250 There is a wide statutory exemption for payments or reimbursements, by employers or third parties, of expenditure on the provision of work-related training

However, any payment or reimbursement of training costs which has as its purpose:

• an intention to reward the employee

• the provision to the employee of an employment inducement (for example, to take up a

new job)

• enabling the employee to enjoy the facilities or benefits for entertainment or recreationalpurposes unconnected with 'work-related training'

will remain taxable.

The rules provide for the following:

• expenditure which is incurred for a mixed purpose (part-reward, part-training) will need

to be apportioned Apportionment is not necessary just because an element of genuinetraining is enjoyable or recreational For example, the incidental use of a hotel’s swimmingpool and leisure facilities during a residential course will not require apportionment

• exemption applies to both internal and external courses

• there is no territorial limitation on the location at which training is undertaken

• exemption extends to a range of training materials including audio/video tapes andcompact/floppy disks

• exemption applies not only to the cost of providing qualifying training, but also extends torelated costs, such as the cost of additional childcare and the travelling and subsistencecosts of the trainee

• the definition of work-related training includes training which is linked to charitable and voluntary activities

• the exemption from tax is mirrored by an NIC exemption

• incidental overnight expenses can be paid tax-free to employees on training courses in the same way as such expenses can be paid tax-free when an employee is away on business

• generally, the exemption does not extend to the cost of providing the employee with,

or with the use of, any asset once the training has ended Exceptions are dealt with in Appendix 9

Further information and guidance about the exemption for work-related training is given inAppendix 9

Workplace nurseries and other employer-supported childcare

Sections 270A, Since 6 April 2005 new rules have applied to the provision of childcare benefits and childcare

318 and 318A vouchers Changes were made to employer-supported childcare in April 2011

See Appendix 11 for details

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General rule

Sections 203(2) and 204 6.1 The amount of a benefit which is treated as earnings from the employment is the cash equivalent

value of the benefit Apart from those benefits referred to in Chapters 11, 12, 13, 14, 17, 21, 22 and 23 the general rule is that the value for tax purposes of a benefit or facility provided for anemployee or the employee’s family or household is the expense incurred by the employer (or theprovider of the benefit) in providing the benefit, less the amount made good by the employee tothose providing the benefit

6.2 If the benefit is shared with other people, the benefit to the employee is based on the cash equivalent

value (the total cost minus any amount made good) of the benefit, apportioned as necessary if, forinstance, the benefit is provided for use partly to the employee and partly to the employer If abenefit is provided to the employee for both business and private purposes, no apportionment of thecash equivalent value is due The full cash equivalent value represents the measure of the benefitprovided to the employee for both private and business purposes, and this is the amount that must

be returned on forms P11D and P11D(b) However, to determine the employment Income Taxliability for the benefit, the employee is entitled to seek a deduction under Sections 336-338 ITEPA(see paragraph 7.1) for expenses incurred for business use, to set against the cash equivalent value ofthe benefit

Section 365 ITEPA 6.3 If the employee does not incur any expenses because the employer meets all the costs incurred for

business purposes, but otherwise the employee would have incurred expenses for business use of thebenefit, the employee is entitled to a deduction under Section 365 ITEPA, equivalent to the

proportion that the business use of the benefit represented relative to its total use for business andprivate purposes For example, if an asset provided as a benefit is used by an employee 40% forbusiness use and 60% for private use, the cash equivalent value returned on form P11D/P11D(b) isfor the full 100% use but for tax purposes the employee is entitled to a deduction under Section 365equivalent to 40% of the cash equivalent value Consequently, the tax liability will be based on 60%

of the cash equivalent value, which represents the proportion of private use of the benefit

Exception - Section 62 6.4 If the benefit consists of the transfer to the employee of any goods or assets which he or she is

then able to sell for cash, the value of the benefit for tax purposes is the greater of:

• the second-hand value of the goods or assets in the employee’s hands, or

• the expense incurred by the employer under paragraph 6.5 below (but see paragraph 6.9 on

page 15)

6.5 Where the benefit consists of the employee being supplied with goods or services, the expense

incurred by the employer should include the extra cost of:

• buying the goods or providing the services

• selecting and testing those goods or services

• storing, distributing and installing the goods or services

• servicing and other 'after sales' expenses

Section 328(1) 6.6 Where any goods or services or any other benefit is supplied to the employee partly for private

and partly for business use, the employee may be able to claim a deduction for the part of the cost that relates to business use, provided part or all of the expense would have been allowable under the expenses rule (see Chapter 7) had the employee met it

Assets placed at disposal of employee

Section 205(2) and (3) 6.7 The initial cost of an asset of the kind mentioned in paragraph 4.3 used by an employee is not

treated as remuneration if the asset remains the property of the employer or of the person

making it available for the use of the employee In such a case the annual value of the use of

the asset (or the rent or hire charge paid for it if this is greater) plus any current expenditure met by the employer or the person making the asset available, will count as remuneration of the

employee The annual value is taken as 20% of the market value of the asset when it was first

used to provide a benefit Where an asset was first used to provide a benefit before 6 April 1980the annual value is taken at 10% (not 20%) of its market value when first applied as a benefit

As indicated in paragraph 4.3 different rules apply to mobile phones, vans and cars

Living accommodation

Sections 97 and 103 6.8 As regards the provision of living accommodation for an employee and members of his or her

family or household see Chapter 21

Chapter 6 Valuation of benefits

Assets transferred to an employee

Section 206(2) and (3) 6.9 The rules for assets transferred to employees are different depending on whether or not the asset has

depreciated or been used

Asset transferred to a director or employee or a member of his or her family or

household before the asset has depreciated or been used

The amount chargeable is:

• the greater of

– the expense incurred by that person in connection with the provision of the asset, or

– the second-hand value of the asset in the hands of the employee if it falls within the meaning

of earnings in Section 62 ITEPA 2003 less

– any amount made good

Asset transferred to a director or employee or a member of his or her family or

household after the asset has depreciated or been used

Where an employee (or member of the employee’s family or household) benefits from the transfer of

an asset (other than a car, van, exempt bicycle or cyclist’s safety equipment – see chapter 5 – or livingaccommodation) at less than its market value, the benefit for tax purposes is the difference betweenthe sum (if any) paid for the asset by the employee and so on and the higher of:

• the market value of the asset as at the date of transfer, or

• the market value of the asset when first applied as a benefit minus any sums already taken into account in taxing benefits derived from the use of that asset

Where an asset not within the preceding paragraph (for example, a car, or something which

had never been applied as a benefit) is similarly transferred and the asset has been used orhas depreciated in value since its production or acquisition by the person transferring it,tax is charged on the market value of the asset at the time of transfer to the employee minusany amount paid for it by the employee

Chapter 7 Deductions for expenses

Sections 337 and 338 7.1 An employee’s remuneration for tax purposes is reduced by the cost of journeys:

• he or she has to make in the performance of the duties of the employment, or

• to a workplace he or she has to attend to carry out the duties of the employment,

but not if the journey is ordinary commuting or private travel

The employee is also entitled to a deduction for any other expenses which are incurred

Section 336 wholly, exclusively and necessarily in the performance of the duties of the employment,

(but see Chapter 20 for an exception for some entertaining expenses)

7.2 No deduction is due for expenses which merely put employees in a position to perform the duties oftheir employment, other than for the cost of travel to a temporary workplace For example, nodeduction is due for the cost of buying ordinary work clothes

Section 36, CAA 2001 7.3 Where plant or machinery, such as a computer is necessarily provided by an employee, for use in

the performance of the duties, he or she may be entitled to a deduction by way of capital allowancesfor depreciation related to its business use No deduction is available if the employee’s employerwould have provided the plant or machinery necessary to do the job, but the employee chooses toprovide it instead

You can claim Annual Investment Allowances (AIA) on any purchase of equipment up to an annual

amount of £50,000 in 2009–10, up to £100,000 in 2010–11 and 2011–12 and up to £25,000 in2012–13 If the total is £50,000 or less, you can claim 100% of the total amount as AIA

Since 2002–03, employees and office holders have not been able to obtain capital allowances for acar, motorcycle or cycle

Sections 359(2) 7.4 If an employee obtains a loan, other than an overdraft, to purchase plant or machinery in

and (3) ICTA 1988 respect of which he or she is entitled to capital allowances (paragraphs 7.2 and 7.3 above),

he or she can obtain relief for interest paid on the loan The interest has to be paid within three years

after the end of the tax year in which the debt was incurred The relief due will be restricted to takeaccount of any private use of the plant or machinery

Subscriptions to professional societies etc.

Sections 343 and 344 7.5 An employee may obtain a deduction for annual subscriptions paid to certain approved professional

bodies or learned societies, where the body’s activities are relevant to the duties of the employment

A deduction may also be due for certain statutory fees paid to such bodies by an employee as acondition of carrying on the employment (for example, as a registered veterinary surgeon or a

practising solicitor) A list of approved bodies is available at www.hmrc.gov.uk/list3/index.htm

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Section 377 7.6 Employees who face a special threat to their personal physical security because of their work are

entitled to a deduction equal to the tax charge which may arise in respect of the provision of, orpayment for, security measures by their employer, or by somebody acting on the employer’s

behalf A deduction is due if all the following conditions are satisfied:

• there must be special threat to the employee’s personal physical security

(for example, from terrorists or other groups who resort to violence)

• the threat must arise wholly or mainly by virtue of the particular office

or employment concerned

• the person providing the benefits or reimbursing the expense must have the meeting

of that threat as the sole object in bearing the cost

• in the case of a security service, the benefit resulting to the employee must consist wholly or mainly of an improvement in the employee’s personal physical security

7.7 Where an employee is provided with a security asset the full amount of the taxable benefit can

be deducted if the provider intends the asset to be used solely to improve personal physical security If the provider intends the asset to be used only partly to improve personal physical security the employee is entitled to a deduction for an appropriate proportion of the resulting benefit

7.8 No deduction is due in respect of:

• security expenditure which an employee incurs out of his or her own pocket and which is not reimbursed by or on behalf of the employer

• any benefit arising from the provision of– cars, ships or aircraft

– a dwelling or ground connected to a dwelling– living accommodation

There is, however, a separate exemption for living accommodation which isprovided as part of special security arrangements - see paragraph 21.2(c)

Employee liabilities and indemnities

Section 346 7.9 Employees are entitled to a deduction for costs or expenses incurred as a result of a claim that

they are subject to liabilities imposed in respect of their actual or alleged acts or omissions in their capacities as employees

7.10 A deduction is also due for the premiums paid on an insurance policy taken out solely to coverthe costs or expenses referred to in paragraph 7.9 above

7.11 In both cases, no deduction is allowed for a payment made in relation to arrangements for which taxavoidance is one of the main purposes

The current rules on the tax treatment of business travel by employees came into effect on

6 April 1998 The rules are explained in detail in booklet 490 Employee travel - A tax and

NICs guide for employers Please note that booklet 490 is not reprinted every year, so if you already

have a copy you should use that The latest edition of booklet 490 was issued in December 2007 You can get a copy by contacting the HMRC office which deals with your PAYE,

or www.hmrc.gov.uk/helpsheets/490.pdf The booklet 490 is also available through the Employer Orderline on 08457 646 646 For opening hours go to www.hmrc.gov.uk/contactus

Chapter 8 Travelling and subsistence expenses

Additional expenses rules

Where an employee goes abroad to work, or an overseas employee comes to work in the UK, someexpenses for which a deduction is not due under the rules mentioned in Chapter 8, may still qualifyfor relief under special rules for foreign travel The special rules for foreign travel are explained in

Chapter 7 of the booklet 490 Employee travel - A tax and NICs guide for employers

The text of the guide is at www.hmrc.gov.uk/helpsheets/490.pdf

The booklet 490 is also available through the Employer Orderline on 08457 646 646 For opening hours go to www.hmrc.gov.uk/contactus

Chapter 9 Employees engaged on international work

10.1 Where an employer (or another person acting on behalf of the employer) bears the travelling

and subsistence expenses of an employee’s spouse who accompanies him or her on a business

trip, the employee is liable to tax on the cost of the spouse’s trip unless either:

• relief is due under the special rules for employees working abroad (Chapter 9) or

• the expenses of the spouse’s journey can be allowed under the ordinary expenses rule as incurred 'wholly, exclusively and necessarily in the performance of' the employee’s duties

Whether such an allowance can be made will depend upon the facts of the particular case (see paragraphs 10.2 to 10.6)

10.2 A deduction for the spouse’s expenses might be admissible if the spouse has some practical

qualification directly associated with the employee’s mission which she or he uses to assist theemployee regularly during the trip For example, as a competent linguist the spouse acts as translator

at business meetings, when otherwise an outside interpreter would have been required A spouse’sexpenses might also be allowed where the employee’s health is so poor that it would be

unreasonable to expect him or her to travel alone

10.3 Where the spouse’s presence is for the purpose of accompanying the employee at businessentertainment functions, the expenses of the spouse’s trip will first need to be considered under the rules, outlined in Chapter 20, about entertainment If a disallowance for the expense

is made in calculating the employer’s tax liability, a deduction may be available under the ordinaryexpenses rule where the spouse’s presence is essential in order to act as host or hostess at a series

of business entertaining occasions which the employee is required to organise as part of the duties.10.4 Where however the part played by the spouse is relatively unimportant (such as giving occasionalassistance with clerical duties or making the travel and hotel reservations), or the main reason for the spouse’s travel is personal, for example, to avoid the separation from the employee or to visitrelatives abroad, the expenses will not be deductible under the ordinary expenses rule It is notenough for the employee’s spouse merely to attend functions where other guests are accompanied

by their spouses

Keeping of records

10.5 Where it is asserted that a spouse’s expenses are allowable for tax purposes it is important that the deduction should be supported by records If it is claimed that the reason for the spouse’sjourney was to act as host or hostess during the business entertaining of overseas customers it should be borne in mind that the Officer of HMRC may ask for information about the occasions andthe extent of any such entertaining

Spouse’s expenses borne by the employee

10.6 Where the spouse’s expenses are not borne by the employer (or another person acting on behalf of the employer) no deduction for tax purposes under the expenses rule described inparagraph 7.1 can normally be allowed

Chapter 10 Expenses for spouse accompanying employee on business trips

11.1 This chapter relates to company cars for the period from 6 April 2003 and to company vans from

6 April 2005

11.2 'Company car' or 'company van' are the terms used in this guidance to describe a car or van forwhich an employee is chargeable to car or van benefit 'Vehicle' denotes car or van

Definitions of car and van

Section 115 11.3 Carmeans any mechanically propelled road vehicle except:

(a) a goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods orburden of any description), for example, a lorry Estate cars and off-road recreational vehiclescount as cars

(b) a motorcycle(c) an invalid carriage, or(d) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used, forexample, a Grand Prix racing car

11.4 Vanmeans:

• a vehicle of a construction primarily suited for the conveyance of goods or burden of any

description (this does not include people)

• with a design weight (the weight which the vehicle is designed or adapted not to exceed when in

normal use and travelling on a road laden) not exceeding 3,500 kilograms

Definitions of car and van: double cab pick-ups

11.5 With effect from 6 April 2002, vehicles commonly known as 'double cab pick-ups' are classified as cars

or vans in line with their treatment for VAT There is more information at

www.hmrc.gov.uk/manuals/eimanual/eim23150.htm

There is no change to the treatment of these vehicles in earlier years, or to the existing treatment of

any other vehicles

When is a charge incurred?

Section 114 and 11.6 A car or van benefit charge is incurred whenever these conditions are met:

Section 120(cars) • a car or van

or Section 154 • is made available

(vans) • without any transfer of the property in it

• to an employee (or to a member of the employee’s family or household)

• by reason of the employment

• and is available for private use

Section 114(3A) 11.7 In addition, for a van benefit charge to be incurred from 2005–06, private use by the employee or by

a member of their family or household must be more than 'insignificant' (see paragraph 14.5onwards)

Vehicles part owned by the employee

11.8 The High Court has confirmed that car benefit applies to these cars and has always done so The

judgement applies equally to vans

Section 117 11.9 Where a vehicle is made available for the private use of an employee (or members of their family or

household) by the employer it is deemed to be made available by reason of the employment, that is

to say, it is deemed to go with the job

There is one statutory exception to this This is where the employer is an individual and it can be

shown that the vehicle was provided in the normal course of ordinary domestic, family or personalrelationships For example, an individual who employs a son might, as a parent, provide the son with

a vehicle to be used for private purposes only Facts in support of a claim that it had been so providedwould be that it had not been treated as a business asset and that no expense or capital depreciationallowance relating to it had been allowed as deductions in computing the parent’s taxable profits

Sections 169 and 11.10 In addition to the statutory exemption mentioned above, a director or employee earning at a rate

169A of £8,500 or more a year is not taxed on the benefit of a vehicle, or of fuel for that vehicle, made

available for private use to a member of their family or household if the person to whom the car wasmade available is chargeable on the benefit in their own right

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A charge is similarly not made on any relative where the person to whom the vehicle was made available is not chargeable on the value of the benefit, provided that:

• the person receives the vehicle in their own right as an employee, and either

• it can be shown that equivalent vehicles are made available to employees in similar employment with the same employer who are unrelated to directors or those earning £8,500

or more a year, or

• it can be shown that the provision of an equivalent vehicle is in accordance with the normalcommercial practice for a job of that kind

Cash alternatives to a company vehicle

11.11 Where an employee has the option of giving up the use of a company vehicle in return for acash payment, the tax treatment depends on the choice made by the employee If the employee keeps the use of the company vehicle the benefit is taxed accordingly If the employee

gives up the vehicle and takes the cash, the cash will form part of the employee’s remuneration for tax purposes

Calculating the charge

11.12 Where a charge applies, details of how to calculate it are at:

• Chapter 12 for car benefit

• Chapter 14 for van benefit

If fuel is provided for the vehicle, see paragraph 11.16

The scope of the charge

Sections 120 11.13 The car, van and fuel benefit charges mentioned in this Chapter, and in Chapters 12 to 14, are

149 and 154 normally the only tax charges which can be made in respect of the benefit derived by an

employee (or members of the employee’s family or household) from a vehicle made available for private use by reason of their employment or from fuel provided for that vehicle

However, the expense of a chauffeur continues to count as an additional benefit, see paragraph 11.15

Private motoring expenses paid directly on behalf of, or reimbursed to, the employee in respect

of a company vehicle will not give rise to a tax liability in addition to the car, van and fuel benefit charge mentioned in this Chapter and Chapters 12 to 14

11.14 Note though, certain motoring expenses not separately charged to tax must nevertheless be taken into account in addition to the vehicle and fuel benefit charges in determining whether

or not an employee is remunerated at a rate of £8,500 or more a year (see paragraph 1.7).The motoring expenses in question are those which are met by:

• the settling of a debt incurred personally by the individual in respect of motoring expenses

• the reimbursement of expenditure incurred by the employee in connection with the vehicle, or

• vouchers or credit cards provided by the employer or by reason of the individual’s employment.Approved Mileage Allowance Payments (AMAPs) are not taken into account, but the rate ofremuneration is calculated without the benefit of any Mileage Allowance Relief; see Chapter 16

Expenses of a chauffeur

Section 239(5) 11.15 The expense incurred by an employer etc in the provision of a chauffeur - whether for a company

vehicle or an employee’s own private vehicle - is a separate benefit assessable on the employee.The cash equivalent of that benefit is calculated in the same way as for other benefits in kind (see Chapter 6)

Provision of fuel

Sections 149 to 11.16 The car or van benefit charge does not cover fuel provided for the company vehicle If fuel is

153 (cars) provided for a company car, or for a company van for which the benefit charge is under

Sections 160 to paragraph 14.3, a fuel benefit charge is also incurred

164 (vans)

Chapter 13 deals with the fuel benefit charge

Exceptions to the car or van benefit charge

11.17 The only exceptions to the car, van and fuel benefit charges are:

Sections 167 and (a) pooled cars or vans (see Chapter 15)

168 (b) vehicles in which private use by the employee is specifically prohibited and which are not

Section 118(1) so used Both requirements must be satisfied for the exemption to apply

Section 247 (c) cars provided for home to work travel to employees who are disabled if all these conditions

– no other private use is in fact made of the car

Section 248A (d) from 2004–05 only, emergency vehicles meeting the conditions in paragraphs 11.18 to 11.22

below They are also exempt from the general benefits charge (see Chapter 4)

Exceptions: emergency vehicles (from 2004–05 only) 11.18 The person (this condition must be met): only those 'employed in an emergency service' qualify

for the exemption This means:

• constables and other persons employed for police purposes,

• persons employed for the purposes of a fire, or fire and rescue service, and

• persons employed in the provision of ambulance or paramedic services

11.19 The vehicle (this condition must be met): for the purposes of this exemption,

an emergency vehicle:

• is a vehicle which is used to respond to emergencies, and

• either has fixed to it a lamp designed to emit a flashing light for use in emergencies

('fixed' indicates that the light must be a permanent fitting to the vehicle It need not be permanently fixed to the exterior of the vehicle, but a vehicle with only a light which can be removed from the vehicle is not an 'emergency vehicle' for the purposes of this exemption), or

• would have such a lamp fixed to it but for the fact that a special threat to the personal physical security of those using it would arise by reason of it being apparent that they were

employed in an emergency service

11.20 The terms (this condition must be met): the emergency vehicle must be made available on terms

which prohibit its private use other than when the person is on call (paragraph 11.21)

or is engaged in on call commuting (paragraph 11.22)

11.21 The person is 'on call' (either this condition or the next one must be met):

• at the time they use the emergency vehicle, the person must be liable, as part of normal duties,

to be called on to use it to respond to emergencies

• use is not limited to ordinary commuting etc, but such use as is permitted can only bereasonably local to the area in which the employee lives and works (they are unlikely to be

in a position to meet the previous bullet in this condition otherwise)

11.22 The person is engaged in 'on call commuting' (either this condition or the previous one must

Cars and vans in the motor industry

11.23 Problems can arise in the motor industry in respect of demonstration, test and experimental vehicles Where, as part of their normal duties, sales staff or demonstrators have to take a vehicle home for the express purpose of calling on a prospective customer, the vehicle will not on that account alone be regarded as available for private use If, however, such a vehicle is otherwise available for the employee’s private use, for example, at weekends or holidays, the appropriate car

or van benefit charge will be assessable on the employee concerned

11.24 The use of test or experimental vehicles by engineers in both the motor and components industrieswill be considered in the light of the particular facts of the case by the HMRC office dealing with the tax liabilities of the employees concerned, but broadly any private use of the test or experimental vehicle by the employee will result in the imposition of the appropriate car benefit charge

Business travel and private use

11.25 'Business travel' means travel for which expenses would qualify for deduction if they were incurred

by the employee Broadly, this means travelling expenses which involve two types of businessjourney:

• journeys which employees have to make in the performance of their duties, and

• journeys which employees make, to or from a place they have to attend, in the performance

of their duties - but not journeys which are ordinary commuting or private travel

Detailed guidance on the types of journey which give rise to qualifying travelling expenses is

contained in booklet 490 Employee travel - A tax and NICs guide for employers.

Section 118(2) 11.26 'Private use' means any use other than for the employee’s business travel This therefore includes

commuting journeys

12.1 Chapter 11 deals with the circumstances in which a car benefit charge is incurred from

6 April 2003 This chapter deals with the calculation of the car benefit charge from the same date

Method of calculation

12.2 Car benefit is calculated in a series of numbered steps (more details start at the paragraphs given):

1 find the price of the car (paragraph 12.4)

2 add the price of any accessories which fall to be taken into account (paragraph 12.8)

3 make any required deductions for capital contributions by the employee (paragraph 12.16)

4 find the appropriate percentage for the car (paragraph 12.22)

5 multiply the figure at Step 3 by the appropriate percentage at Step 4 (paragraph 12.32)

6 make any required deduction for periods when the car was unavailable (paragraph 12.35)

7 make any required deduction for payments by the employee for private use of the car (paragraph 12.37)

This method of calculation is modified in the case of classic cars (those 15 years of age or more; Steps 1 to 3, see paragraph 12.18)

There are special rules for disabled drivers affecting Step 1 (paragraph 12.7), Step 2 (paragraph 12.15) and Step 4 (paragraph 12.31)

Finally, the benefit so calculated may be reduced where the car is shared (paragraph 12.38)

Appendix 1 contains some examples

Cars which run on 'road fuel gas'

12.3 There are different rules for these cars:

(i) cars manufactured to run on road fuel gas: an adjustment at Step 1 (paragraph 12.6) (ii) cars converted to run on road fuel gas: an adjustment at Step 2 (paragraph 12.14) 'Road fuel gas' means any substance which is gaseous at a temperature of 15°C and under a

pressure of 1013.25 millibars, and which is for use as fuel in road vehicles The two types of road fuel gas currently in use are compressed natural gas (CNG) and liquid petroleum gas (LPG)

Step 1: The price of the car

Sections 122 to 124 12.4 The price of a car means:

• its list price, if it has one, or

• its notional price, if it has no list price (see paragraph 12.5)

The list price is the inclusive price published by the manufacturer, importer or distributor of the

car if sold singly in a retail sale in the open market in the UK on the day before the date of thecar’s first registration It includes standard accessories, any relevant taxes (value added tax, car tax(where appropriate), any customs or excise duty, any tax chargeable as if it were a customs duty) and delivery charges, but excludes the new car registration fee because it is an administration fee, not a tax

The list price is not the dealer’s advertised price for the car, nor the price paid for the car, which

may incorporate discounts or cashbacks from the list price

The notional price of a car with no list price

12.5 The normal price is the list price Only if there is no list price can the notional price be used

The notional price of a car is the price which might reasonably have been expected to be its list

price if its manufacturer, importer or distributor had published a price as the inclusive priceappropriate for a sale of a car of the same kind sold singly in a retail sale in the open market in the UK on the day before the date of the car’s first registration

The notional price includes all accessories equivalent to the qualifying accessories (paragraph 12.8)

available with the relevant car at the time when it was first made available to the employee (for instance, all accessories which would otherwise be added at Step 2 as initial extra accessories, see paragraph 12.11), and any relevant taxes (as in paragraph 12.4)

Cars manufactured to run on 'road fuel gas' (type (ii) in paragraph 12.3)

12.6 The price of the car found under Step 1 is reduced by so much of that price as it is reasonable to

attribute to the car being manufactured in such a way as to be capable of running onroad fuel gas rather than only on petrol Normally, this means replacing the price of the car which can run on road fuel gas with the (lower) price of the petrol-only equivalent model

Automatic car for a disabled employee

12.7 From 2009–10 only, if the only car that an employee who holds a disabled person’s badge can drive isone with automatic transmission, the price of the car is the list (or notional, where appropriate) price

of the closest manual equivalent, which is:

•a car first registered at or about the same time as the automatic car, and

•which does not have automatic transmission, but otherwise is the closest variant available of themake and model of the automatic car

Step 2: AccessoriesQualifying accessories

Section 125(1) 12.8 A qualifying accessory is an accessory which:

(a) is made available for use with the car without any transfer of the property in the accessory (b) is made available by reason of the employee’s employment

(c) is attached to the car (whether permanently or not)

Please note:

• condition (a) means that accessories which the employee owns are not included, for example, where an employee buys his or her own in-car stereo system for use in the company car.

• condition (c) means that only accessories which are attached to the car are qualifying accessories

A roof rack, for example, which can be removed from time to time will be a qualifying accessory if the other conditions are satisfied But optional accessories such as car rugs, loose tools, maps and so on which are not attached to the car are not included.

Meaning of accessory

Section 125(2) 12.9 'Accessory' includes any type of equipment, but does not include:

(a) an accessory necessarily provided for use in the performance of the duties of the employment

(b) equipment by means of which a car is capable of running on road fuel gas (see paragraph 12.14) (c) equipment to enable a disabled person to use the car (see paragraph 12.15)

(d) a mobile phone

Please note:

condition (a) means that those accessories which are necessarily provided for use in the performance of

duties of the employee’s employment are not counted An example would be a tow bar fitted as an option

to a car because as part of the job the employee is required to tow a trailer carrying the equipment needed

to carry out the duties of the job The price of such a tow bar is disregarded at Step 2 and so it is not taxable as a benefit, whether or not any private use is made of it.

The rules for accessories

12.10 Accessories are dealt with in three groups:

• initial extra accessories (those with the car when it is first made available to the employee,paragraph 12.11)

• later accessories (those added after the car was first made available to the employee, paragraph 12.12)

• replacement accessories (which can be replacements for accessories in either of the abovegroups, paragraph 12.13)

In all cases, the price includes any charge for delivering the accessory to the seller’s place of

business, value added tax and any fitting charges

26

Section 124

Section 146

Initial extra accessories

Sections 126(2) 12.11 The price of initial extra accessories is only added to a car with a list price (the notional price of

the car at paragraph 12.5 includes them)

An initial extra accessory is a non-standard accessory which is available with the car at the time

when it is first made available to the employee The price of an initial extra accessory is:

(a) the list price published by the manufacturer, distributor or importer of the car for the dayimmediately before the date of the car’s first registration

(b) if there is no such price, the list price published by the manufacturer, distributor or importer

of the accessory at the time immediately before the accessory is first made available with the car, or

(c) if there is no list price of either kind, the notional price (the inclusive price it might reasonably havebeen expected to fetch at the time immediately before the accessory is first made available withthe car)

The price of those in category (a) is added whether or not they are available with the car in the tax year in question The price of those in categories (b) and (c) are added if they remain available with the car at any time in the tax year in question

Both list and notional prices are for the accessory if sold singly in a retail sale in the open market

in the UK and include any relevant taxes (paragraph 12.4) other than car tax

Later accessories

Sections 126(3) 12.12 The price of any later accessories is added to all cars The price is in either category (b) or (c)

and 127(2) of paragraph 12.11, as appropriate, and is calculated on the same basis

A later accessory is one which was not available with the car at the time when it is first made

available to the employee, but is available in the tax year in question Later accessories are

disregarded if added before 1 August 1993 or if the price does not exceed £100

The lower limit of £100 means that inexpensive accessories which are made available during the period are not included in the benefit charge However, a set of items should not be divided for this purpose - for example, a set of four alloy wheels with a total cost of £300 is not treated as four separate wheels each with an individual cost of £75

If a later accessory is added part way through a tax year, its price is included at Step 2 for the whole year There is no time-apportionment

Replacement accessories

Section 131 12.13 A replacement accessory is an accessory which replaces another qualifying accessory ('the old

accessory') and is of the same kind as the old accessory 'Kind' for this purpose depends on function:

a radio/cassette player and a radio/CD player are not of the same kind because their function isdifferent, whereas alloy wheels are of the same kind as steel wheels because their function is the same

Where the replacement accessory is not superior to the old accessory, Step 2 operates as though the replacement had not been made The price of the original accessory continues to be counted (even though it may have been removed in an earlier tax year) and the price of the replacement

is ignored

Where an accessory is replaced by a superior accessory, the price of the replacement accessory is added at Step 2 in the normal way but the price of a non-standard old accessory is disregarded (note that the price of a standard accessory counted at Step 1 is not disregarded)

Cost of converting a car to run on 'road fuel gas' (type (ii) in paragraph 12.3)

Section 125(2)(b) 12.14 The cost of equipment to enable a car to run on road fuel gas is not treated as an accessory and

therefore the cost of conversion to run on road fuel gas is not added at Step 2

Equipment for the disabled

Section 172 12.15 Equipment to enable a disabled person to use the car is not counted as an accessory

(and therefore its price is disregarded at Step 2) if it is either:

• designed solely for use by a chronically sick or disabled person (for example, hand controls for

people who are unable to operate ordinary pedal controls, or fittings to enable a wheelchair user to use the car), or

• if the employee holds a disabled person’s (blue) badge at the time the car is first made

available to them, other equipment which is made available for use with the car as a non-standard accessory because it enables the employee to use the car in spite of the disability which entitles them to the blue badge (for example, optional power steering or electric windows

on a car made available to an employee who would not be capable of operating it without them, but note that there is no reduction for such items if they are fitted as standard accessories

because these are accounted for at Step 1)

Step 3: Capital contributions

Section 132 12.16 The effect of Step 3 is to reduce the amount carried forward from Step 2 where the employee has

contributed a capital sum, or capital sums, to expenditure on the provision of:

• the car (Step 1), or

• any qualifying accessory (so long as it is taken into account at Step 2)

The amount to be deducted is the lesser of:

• the total of the capital sums contributed by the employee in that and any earlier years toexpenditure on the provision of the car or any qualifying accessory taken into account at Step 2, and

• £5,000

Capital contributions are payments towards the cost of the car or qualifying accessories They should not be confused with payments for private use of the car, see paragraph 12.37

Years when amount allowed

Section 132(2) 12.17 The deduction under paragraph 12.16 is made for the year in which the contribution is made and all

subsequent years in which the employee is chargeable to tax in respect of the car Therefore, if the car

is transferred from one employee to another, the first employee’s contributions are not taken intoaccount in calculating the benefit of that car for the second employee

Steps 1-3: Changes for classic cars

Section 147 12.18 Steps 1 to 3 are varied in the case of a classic car whose list price is low compared with its current

value A classic car is:

• 15 or more years old at the end of the tax year, and

• with a market value for the year of £15,000 or more, and

• that market value exceeds the amount carried forward from Step 3 above

When all the above conditions are met, substitute the market value of the classic car for the yearless any capital contribution for the amount otherwise carried forward from Step 3 above

Market Value

12.19 The market value of a classic car is the price which it might reasonably have been expected to

fetch in a sale on the open market on the last day in the tax year when it was available to theemployee, on the assumption that any qualifying accessories available with the car on that day are included in the sale

Market values of classic cars may be found in specialist publications, contemporaneous sale

documents or insurance details for the car concerned If a classic car is bought in a poor state of repair and is restored during the year, then it is the market value of the restored vehicle on the last day in the tax year when it was available to the employee which is used, not the cost of the earlier purchase

Capital contribution towards classic cars

12.20 The amount to be deducted is calculated in exactly the same way and with the same limit as for

other cars (paragraph 12.16)

Price cap for expensive cars

Section 121(1) 12.21 From 2011–12 there is no restriction on the price of a car The full price of the car determined in

Steps 1 to 3 is used to calculate the car benefit so the figure carried forward at Step 3 is the figuremultiplied by the appropriate percentage at Step 5

For the years up to and including 2010–11 the price of a car at Step 3 was restricted to £80,000

Step 4: The appropriate percentageThe approved CO2 emissions figure

Sections 134 to 136 12.22 Cars registered in the UK and in other European Community countries must be submitted by

their manufacturers or importers for a 'type approval' test The level of CO2emitted by the car

is one of the factors reviewed in the course of the test The approved CO2emissions figure for carbenefit purposes is that which is recorded on the type approval certificate summarising the results

of the type approval testing procedure The result of this test is available in various ways

For cars first registered:

• on or after 1 January 1998 with an approved CO2emissions figure, see paragraphs 12.23 to 12.28

• on or after 1 January 1998 without an approved CO2emissions figure, see paragraph 12.29

• before 1 January 1998, see paragraph 12.32 for all such cars

Please note: for car benefit purposes, the CO 2 emissions figure that applies at the date of first registration

is set for the life of the car.

28

Cars first registered in the UK from 1 March 2001

12.23 The approved CO2emissions figure is shown on the Vehicle Registration Document (V5) or

Vehicle Registration Certificate (V5C)

Cars first registered 1 January 1998 to 28 February 2001

12.24 The manufacturer should provide this information if asked to Although manufacturers are entitled

to charge a small fee, some manufacturers are happy to provide this information free of charge The Vehicle Certification Agency (VCA) supplies CO2(and other) emissions data in two formats:

• on a website at www.vcacarfueldata.org.uk/index.asp

• in a booklet it publishes called New Car Fuel Consumption and Emissions Figures (though the

website is normally more up to date) This is normally updated annually and can be downloadedfrom the website Copies of the current and earlier printed editions can be ordered free of chargefrom the above website or by post from

Vehicle Certification Agency

1 The Eastgate Office Centre

Eastgate Road

Bristol

BS5 6XX

As the VCA website figures relate to new cars currently on sale in the UK, employers will not be able

to use the internet database to find the approved CO2emissions figure for a car sold as new, say, twoyears ago However, the downloaded or printed version of the VCA booklet that was current at thetime a car was first registered will provide a useful historical record

12.25 The figures should normally be the same if they relate to the same car and the same year But as the

figures on the VCA website and in its booklet relate to new cars they may well be different to thefigures on the SMMT website (to which readers were referred in earlier editions) for cars firstregistered between January 1998 and February 2001 You should make sure that you refer to thesource of information that is most appropriate for the age of the car in question If you have retained

a copy of the VCA booklet from an earlier year, there is no need to check both databases once youhave found the CO2figure for the right model of car and year If you do happen to find a smalldiscrepancy, then use the lower figure If you find a larger discrepancy, then contact your HMRC office for advice

Remember, for cars registered 1 March 2001 and later the Vehicle Registration Document (V5) or Vehicle Registration Certificate (V5C) will be the definitive source of the approved CO2emissions figure Cars with a CO2 emissions figure first registered on or after 1 January 1998 only

Section 139 12.26 From 2008–09 to 2011–12, there are special rules for ‘qualifying low emissions cars’ These are cars

(other than type E cars) with CO2emissions figures not exceeding exactly 120 g/km; the normalrounding rules are disapplied, so a car with CO2emissions of 121 g/km is not a QUALEC

Section 139 12.27 The appropriate percentage for QUALECs is 10%, though for 2010–11 to 2014–15 cars with CO2

emissions figures between 1-75 g/km have an appropriate percentage of 5% This is subject to anadjustment for diesel cars (see paragraph 12.30)

Section 139 12.28 For all cars other than QUALECs, there is a ready reckoner in Appendix 2 which gives the appropriate

percentages for a petrol-powered car for 2011–12 onwards See previous editions for earlier years.This is subject to an adjustment for diesel cars (see paragraph 12.30)

Cars first registered on or after 1 January 1998 without an approved CO 2 emissions figure

Section 140 12.29 The appropriate percentage for the very few cars with an internal combustion engine and one

or more reciprocating pistons but without an approved CO2emissions figure is based on theirengine size, as follows

1,400 or less More than 1,400 but not more than 2,000More than 2,000

If the car does not have an internal combustion engine with reciprocating pistons, the appropriate

percentage is:

• 0% for 2010–11 to 2014–15 inclusive for cars which cannot in any circumstances emit CO2by

being driven

• 35% in any other case (for example, a car with a rotary Wankel engine)

This is subject to adjustments for cars powered by other fuels as shown at paragraph 12.30

Cars first registered on or after 1 January 1998: adjustments to the appropriate percentage

2 Subject to the overall maximum percentage of 35%.

3 Former type B cars have different CO 2 emissions figures for different fuels; the lowest CO 2 figures can still

be used (normally that for gas).

Cars first registered on or after 1 January 1998: reduction for disabled employees

Section 138 12.31 If the only car that an employee who holds a disabled person’s badge can drive is one with

automatic transmission, the appropriate percentage is calculated using the approved CO2emissions figure of the closest manual equivalent, which is:

• a car first registered at or about the same time as the automatic car, and

• which does not have automatic transmission, but otherwise is the closest variant available of the make and model of the automatic car

The appropriate percentage for all cars registered before 1 January 1998

Section 142 12.32 The appropriate percentage for every car first registered before 1 January 1998 is based on its

engine size, even if (exceptionally) it has an approved CO2emissions figure:

If the car does not have an internal combustion engine with reciprocating pistons, the appropriate

percentage is:

• 15% if it is propelled solely by electricity (for example, by a battery)

• 32% in any other case (for example, a car with a rotary Wankel engine)

Please note: the adjustments in paragraph 12.30 and 12.31 do not apply to cars registered before

1 January 1998.

Step 5: Calculating the car benefit charge for a full year

Section 121(1) 12.33 The cash equivalent of the benefit of the car for a full year is calculated by multiplying the figure

from Step 3 (the price of the car and accessories) by the appropriate percentage from Step 4

Step 6: Reductions for periods when car unavailable

Section 143 12.34 When the car is unavailable for any part of the year, the figure carried forward from Step 5 is

reduced in proportion to the number of days of unavailability

Meaning of unavailable

Section 143(2) 12.35 A car is treated as being 'unavailable' on any day if the day falls:

(a) before the first day on which the car is available to the employee, or

(b) after the last day on which the car is available to the employee, or(c) within a period of 30 or more consecutive days throughout which the car is not available

to the employee

Replacement cars

Section 145 12.36 If the normal car is not available for a period of less than 30 days, there is no reduction because

the car is not deemed to be 'unavailable' during that period

If during that period the employee is provided with a replacement car, it is not also charged as a benefit if it is not:

• materially better than the normal car, or

• provided as part of an arrangement whose purpose was to provide the employee with a materially better car then the normal car

Cylinder capacity of car in cubic centimetres Appropriate percentage1,400 or less

More than 1,400 but not more than 2,000More than 2,000

15%

22%

32%

31

Step 7: Reductions for private use

Section 144 12.37 Payments that an employee makes for the private use of the car are deducted from the figure

carried forward from Step 6 and can reduce the benefit charge to nil

Shared cars:

Section 148 12.38 A shared car is one:

• which is available to more than one employee concurrently

• made available by the same employer

• available concurrently for each employee’s private use, and

• for which two or more of those employees are chargeable to tax for that year

Where these conditions are fulfilled the benefit of the car to each employee is:

• calculated separately under Section 121 (paragraphs 12.4 to 12.37), and

• then reduced on a just and reasonable basis

However, only availability to those chargeable on the benefit of the car is to be taken into account

in making this reduction Any availability to employees not so chargeable (either because their earnings are insufficient or because they are prohibited from using the car privately and do not

do so) is to be disregarded The total amount chargeable in respect of the car is therefore the same as if the car had been available to only one employee for private use and there had been

no sharing

In practice, the reduction is made after Step 6 and before Step 7 above

Section 149 13.1 Where fuel is provided for a car the benefit of which is taxed in accordance with Chapters

11 and 12 ('company cars'), a fuel benefit charge will normally apply to tax the fuel provided

in addition to the car benefit charge This is so whether or not the fuel is provided forprivate use

A fuel benefit charge also arises where fuel is provided for a van taxed in accordance with Chapters 11 and 14 ('company vans'), but only where the charge arises under paragraph 14.3.See paragraph 13.5 below where:

• the fuel is provided only for business use, or

• the employee or their family is required to and does cover all private fuel costs personally for the whole period for which the company vehicle is available to them, and

• paragraph 13.9 where this applies only for part of that time

'Vehicle' below means car or van

Fuel for vehicles owned or hired by employees

13.2 The fuel benefit charges do not apply to fuel provided for use in an employee’s own vehicle, or

in a vehicle hired by the employee The expense incurred by an employer (or another person onbehalf of the employer) in providing fuel for any such vehicle is taxable upon the employee See also Chapter 16

The remaining paragraphs deal only with fuel provided for 'company vehicles'.

The provision of fuel

13.3 Subject to paragraph 13.5 below, a fuel benefit charge is incurred where either:

• the cost of the fuel for the 'company vehicle' is met either directly or indirectly by some person other than the employee (or members of their family or household), or

• the employee is reimbursed for the cost of any fuel used in that vehicle

Except as described in paragraph 13.12, the payment of a mileage allowance in connection withthe use of a 'company vehicle' will normally constitute the provision of fuel

Scope of the car and van fuel benefit charges

13.4 The fuel benefit charge is normally the only tax charge in respect of the provision of fuel for

private use by an employee (or members of their family or household) in a 'company vehicle'

So the cost of fuel for private motoring reimbursed to the employee or paid on their behalf bythe employer (for example, by way of credit card or a voucher) will not produce a tax liability

in addition to the fuel benefit charge, unless the amount reimbursed exceeds the cost of that fuel.

if the reimbursement is excessive, the 'profit element' will be chargeable to tax in the normal way

Reducing the fuel benefit charges to nil

13.5 The fuel benefit charge is nil whenever fuel is provided for a 'company vehicle' and:

(a) in the year the employee is required to make good to the person providing the fuel for private

motoring (including travel between home and work) the whole of the expense incurred in its provision and in fact does so, or

(b) fuel is made available only for business travel

On (a), see paragraphs 13.10 and 13.11 for guidance on the meaning of 'making good' andparagraph 13.13 on the use of HMRC advisory fuel rates in this context

In the context of (b), see paragraph 11.25 for the meaning of 'business travel'

Calculating the fuel benefit charges for a whole year

13.6 The car fuel benefit charge is calculated by multiplying two figures:

• a fixed sum (£18,800 for 2011–12 onwards), and

• the 'appropriate percentage' used to calculate the car benefit (see paragraph 12.22 onwards)

There is never any need to calculate a new appropriate percentage for car fuel benefit In every

case, whether or not the car has an approved CO2emissions figure, the appropriate percentageused to calculate the car benefit charge is used to calculate the car fuel benefit charge

For example, a car powered by petrol has CO2emissions of 180g/km, so the appropriatepercentage used to calculate the car benefit charge for 2011–12 is 26% The 2011-12 car fuelbenefit charge for the car is £18,800 X 26% = £4,888

13.7 There was no van fuel benefit charge until 2005–06, so any fuel provided in earlier years was covered by the van benefit charge.

Section 161 The van fuel benefit charge is nil for 2005–06 and 2006–07, so its existence can be effectively

ignored From 2010–11 onwards, the charge is £550 (previously £500)

Reducing the charge: car or van unavailable

Sections 152(1) 13.8 The fuel benefit charge is reduced proportionately for periods for which the 'company vehicle'

and 163(1) is unavailable (see paragraph 12.34 and 14.11 respectively) The proportion by which the charge

is reduced is the same for both the vehicle benefit and fuel benefit

Reduction because private fuel is withdrawn

Sections 152 and 13.9 The fuel benefit charge is reduced if free fuel ceases to be provided to an employee during

163 the tax year This requires a decision to introduce conditions (a) or (b) at paragraph 13.5 above

on a date in the year

Any days after the provision of free fuel ceased on which the company vehicle was available are added to any days for which it was unavailable as described in paragraph 13.8 However, receiving free fuel again later in the same tax year will prevent any apportionment under this paragraph

'Making good' fuel provided for private motoring

13.10 Where the employee is required to make good the cost of all fuel provided for private motoring

in a 'company vehicle' as described in paragraphs 13.5 or 13.9, they may do so by:

(a) payment – that is by paying to the person providing the fuel a sum of money either

directly or by deduction from their net salary or wages, or

(b) reinstatement – that is by replacing the fuel provided for private use by a corresponding

amount of fuel purchased from their own pocket, or

(c) any combination of (a) or (b) above

See paragraph 13.13 for how HMRC advisory fuel rates can simplify this for company cars

13.11 The fuel benefit charge is only reduced in accordance with paragraph 13.5 or 13.9 if the employee makes good the cost of all the fuel provided for private motoring If the employee fails to fully make good in this way, the fuel benefit charge as calculated under paragraphs 13.6

to 13.9 applies without any reduction for the repayments made by the employee

Mileage allowance paid by the employer

13.12 Where the employer does not directly meet the cost of fuel used for business in a 'company vehicle'

but pays the employee a business mileage allowance, no fuel benefit charge will arise if the mileageallowance does no more than meet the cost of fuel used for business travel (see paragraph 11.25)

If the mileage allowance is excessive, but it is only paid for genuine business travel, the 'profitelement' will be chargeable to tax in the normal way

However, a car fuel benefit charge will arise where, for instance, the payments to the employee cover travel between home and work

See paragraph 13.13 for how HMRC advisory fuel rates can simplify this for company cars

Advisory Fuel Rates (for company cars only - not applicable to vans) 13.13 We have published guidelines on fuel only mileage rates for company cars

The full background about the advisory fuel rates and details of both current and past rates is at

www.hmrc.gov.uk/cars/fuel_company_cars.htm

This makes clear that there is no obligation to use the advisory fuel rates Where employers wish touse them, they only apply where employers:

• reimburse employees for business travel in their company cars (paragraph 13.12), or

• require employees to repay the cost of fuel used for private travel in those company cars (paragraph 13.5 or 13.9)

34

Sections 51(2)

152(2)(c) and

163(3)(c)

Chapter 14 Vans available for private use

For earlier years, see previous editions of booklet 480.

Section 115 14.1 Chapter 11 deals with the circumstances in which a van benefit charge is incurred from

6 April 2005 This chapter deals with the calculation of the van benefit charge from thesame date

The amount of the charge

Section 155 14.2 The charge is nil if both the following requirements are satisfied throughout the year

(or part of the year on when the van is available to the employee):

• the van must only be available to the employee for business travel and commuting It must not in fact be used for any other private purpose except to an insignificant extent, and

• the van must be available to the employee mainly for use for the employee’s business travel

Section 155(3) 14.3 If both the requirements at paragraph 14.2 are not met, the charge for 2007–08 onwards is £3,000

14.4 If the van cannot in any circumstances emit CO2by being driven, the charge for 2010–11 to 2014–15 inclusive is nil

Insignificant

Sections 114(3A) 14.5 The word 'insignificant' is not defined, so takes its normal meaning of 'too small or unimportant

and 155(3) to be worth consideration' (New Oxford English Dictionary) Private use is to be considered

insignificant if it is:

• insignificant in quantity in the tax year as a whole (that is, a few days at most)

• insignificant in quality (for example, a week’s exclusive private use is clearly not insignificant)

• intermittent and irregular

• very much the exception in terms of the pattern of use of that van by that employee (or their family or household) in that tax year

14.6 Examples of insignificant use are an employee who (using the van):

• takes an old mattress or other rubbish to the tip once or twice a year

• regularly makes a slight detour to stop at a newsagent on the way to work

• calls at the dentist on his way home

14.7 Examples of use which is not insignificant are an employee who:

• uses the van to do the supermarket shopping each week

• takes the van away on a week’s holiday

• uses the van outside of work for social activities

14.8 If the van in which the private use takes place is shared (see 'shared vans' below), use is likely to

be insignificant if it is not just and reasonable to reduce the benefit of the other sharer on account

of it (precisely because the use which is 'too small or unimportant to be worth consideration')

Reductions in the charge

Section 156 14.9 The charge is reduced for the following reasons, and in this order when:

• the van is unavailable (paragraph 14.10)

• the van is shared (paragraph 14.12)

• the payments are made for private use of the van (paragraph 14.16)

Reduction because van unavailable

Section 156 14.10 When the van is unavailable for any part of the year, the benefit charge is reduced in proportion

to the total number of days on which it is unavailable

14.11 A van is treated as unavailable to an employee on any day if the day falls:

• before the first day on which the van is available to the employee

• after the last day on which the van is available to the employee

• within a continuous period of 30 or more days throughout which the van is, in fact, not

available to the employee at all

Shared vans

Section 157 14.12 The next adjustment to the amount of the charge is to take into account whether the van is shared

A shared van is one which:

• is available to more than one employee concurrently

• is so made available by the same employer, and

• is available concurrently for each employee’s private use

Section 157 14.13 To calculate the charge on each employee sharing a van:

• calculate the charge (as above) as though the van were not shared, and then

• reduce that charge on a 'just and reasonable' basis

14.14 There is a special rule where two members of the same family or household, 'E' and 'M', share a vanand E is in excluded employment (that is, is not chargeable under the benefits code) In that case, E’suse of the van is disregarded when applying the 'just and reasonable' reduction to the charge on M.14.15 In general, the total charge for the shared van should be the same as if only one employee had used it This is because a reduction in the charge for one employee is matched by an equivalentcharge on another (or other) employees

Payments for private use

14.16 The amount chargeable on each employee is reduced pound for pound by the amount whichthe employee is required to pay, and actually pays, for private use of the van This adjustment is made after any reduction because the van is shared

Van temporarily replaced

14.17 If a van is unavailable for fewer than 30 days and is replaced by another, there is no additionalcharge for the replacement van Instead, it is treated as though it were the normal van for thatperiod, meaning that the terms and conditions for the replacement are treated as though theyapplied to the normal van

Record keeping

14.18 Employers will need to be able to substantiate the end of year returns they make on form P11D,including nil returns

14.19 Where a benefit is declared, the employer will need to identify:

• each van used by an employee

• the age of each van (up to and including 2006–07)

• if a van is shared, by whom and in what proportions

• periods of 30 or more consecutive days when a van was incapable of use

• contributions required to be paid and actually paid by any employee having had private use

of a van

14.20 Where a nil return is made, it will be necessary to demonstrate that the necessary conditions

have been complied with in practice as well as in theory Useful information will include the terms and conditions on which the van is made available to the employee and mileage records showingactual use

36

Section 158

Section 159

Sections 167 and 168 15.1 In this chapter references to cars include vans A car is not considered to be available for private use

Sections 167(2) if it is a pooled car So no assessable benefit arises from its use

and 168(2)

A car only qualifies as a pool car if all the following conditions are satisfied:

(a) it is available to, and actually used by, more than one employee(b) it is made available, in the case of each of those employees, by reason of their employment(c) it is not ordinarily used by one of them to the exclusion of the others

(d) any private use by an employee is merely incidental to their business use of it, and(e) it is not normally kept overnight on or near the residence of any of the employees unless it

is kept on premises occupied by the provider of the car

Employers need to be able to demonstrate that the conditions for the car or van to be a pool vehicle have been met, for instance by keeping mileage records to show when the car was used, by whom and for what journeys

The word employee has its ordinary meaning here The definition in paragraph 1.7 and 1.8

does not apply in connection with pooled cars

Meaning of 'merely incidental to'

Sections 167(3)(d) 15.2 The expression 'merely incidental to' imposes a qualitative rather than a quantitative test

The use of a car for what is primarily a business journey but embracing some limited private use would be within the terms of (b) in paragraph 15.1 above A simple example might be where an employee who is required to undertake a long business journey is allowed to take a

pool car home the previous night in readiness for an early morning start The office to home

journey although private is, in this particular context, subordinate to the lengthy business trip

the following day and is undertaken to further the business trip In short, it is merely incidental

to the business use of the car on that occasion A reservation is necessary in this type of case:

if it happened too often, condition (e) in paragraph 15.1 above would not be met

Meaning of 'not normally kept overnight'

Sections 167(3)(e) 15.3 It is accepted that a car is not normally kept overnight at or near the homes of employees if

the number of occasions on which it is taken home by employees does not amount to more than 60% of the year But where a car is garaged at the employees’ homes on a large number

of occasions, although for less than 60% of the year, it is unlikely that all the home to work

journeys would satisfy the 'merely incidental to' test in paragraph 15.2.

15.4 Where a chauffeur employed to drive pooled cars is obliged to take a pooled car home for

retention overnight, the purely private use by the chauffeur in travelling between their normalplace of work and his or her home would not of itself be regarded as disqualifying the car fromtreatment as a pooled car Equally, the fact that in such circumstances the car was kept overnight

at the chauffeur’s home would not normally be regarded as disqualifying the car from counting

as a pooled car

Inadequate parking facilities, etc.

15.5 Subject to the exception mentioned at paragraph 15.4 above all five conditions at paragraph 15.1 must be satisfied if the car is to qualify for exemption as a pooled car So a car which met the

tests at (a) to (d) in paragraph 15.1, but which was normally taken home at night by an employee because of inadequate parking facilities at the employer’s premises, would fail test (e)

in paragraph 15.1 and would thus not count as a pooled car

Chapter 15 Pooled cars or vans

Sections 167(3)

and 168(3)

and 168(3)(d)

and 168(3)(e)

Chapter 16 Mileage Payments and Passenger Payments

Mileage Allowance Payments

Section 229(2) 16.1 Mileage Allowance Payments (MAPs) are defined as 'amounts, other than passenger payments,

paid to an employee for expenses related to the employee’s use of such a vehicle for business travel' (see paragraph 16.10 about passenger payments; 'such a vehicle' refers to any car, van, motorcycle

or cycle)

Please note that:

• the payment must be made direct to the employee, not to someone else for the employee’sbenefit

• only MAPs can be paid tax-free as AMAPs in the way described below.

Approved Mileage Allowance Payments (AMAPs)

Sections 229(3) 16.2 Employees using their own cars, vans, motorcycles or cycles for business travel can receive a

and 230 tax-free amount (the approved amount for Mileage Allowance Payments) instead of being taxable

on what they received and having to obtain a deduction for expenses incurred These tax-freeamounts are called Approved Mileage Allowance Payments, or AMAPs for short

16.3 AMAPs cover any general or mileage-related expenses in relation to the car itself (such as fuel,

servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle No additional deduction is available for expenses of that type

They do not cover other expenses specific to the particular journey (such as parking charges,

road tolls or accommodation) and the normal rules for deductions apply to expenses of this type

Section 230(2) 16.4 The approved amount (the maximum that can be paid tax-free) is calculated as the number of miles

of business travel by the employee (other than as a passenger, and whether or not they are reimbursed for them) multiplied by a rate expressed in pence per mile The tax-free amount therefore depends only on business miles travelled and is not related to the actual expenses incurred 16.5 There are three kinds of vehicles under the AMAPs scheme:

• cars or vans

• motorcycles

• cycles

Each kind of vehicle is dealt with separately, though different vehicles of the same kind are dealt

with as though they were the same vehicle The rate in pence per mile for each kind of vehicle is

in Appendix 3

16.6 Where an employee receives payments from two or more associated employments, all business

travel is treated as though it related to a single employment when calculating whether the 10,000 mile limit for cars or vans has been reached

16.7 If you pay more than the approved amount, the excess should be returned on form P11D or P9D

If you pay the exact amount, do not notify HMRC at all, whether on forms P11D, or otherwise Ifyou pay less (or nothing at all), the employee is entitled to a deduction for the shortfall as MileageAllowance Relief - see paragraph 16.9

16.8 There is a similar scheme for National Insurance contributions, but the rules and rates for NICs

are slightly different - see the latest edition of booklet CWG2 Employer further guide to PAYE and NICs

for details

Mileage Allowance Relief (MAR)

Sections 231 16.9 If an employee is paid less than the approved amount, they are entitled to a deduction for the

and 232 shortfall Employers can agree with their HMRC office to make separate optional reports of

negative amounts under a scheme called Mileage Allowance Relief Optional Reporting Scheme(MARORS) which only caters for negative amounts Contact your HMRC office if you want to enter this scheme

Passenger Payments

Section 233 16.10 There is an additional exemption from tax for payments to employees travelling on business

journeys because they are carrying other employees, for whom the journeys are also businesstravel, as passengers The payments must be made specifically because passengers are being carried and be in addition to Mileage Allowance Payments for the travel itself

16.11 Passenger payments can be paid to employees using:

• their own car or van (and so eligible for Approved Mileage Allowance Payments)

• a company vehicle for which they are chargeable to either car or van benefit (and so not eligiblefor Approved Mileage Allowance Payments)